Mahendra Ramsinghani joins Nick to cover Startup Boards, Part 2. We will address questions including:
- What cadence/frequency should Board meetings occur?
- Can you talk about the board meeting itself and how the best meetings operate?
- How does the startup board’s makeup and responsibilities evolve over the course of a startups growth?
- What are the most common missteps and issues that you’ve seen with boards?
- How do board seat transitions occur?
- What’s your current investment focus area?
- Mahendra on Twitter
- The Business of VC (Blog)
- The Business of Venture Capital (Book)
- Startup Boards: Getting the Most Out of Your Board of Directors (Book)
- mahen dot r at gmail dot com
1- Early group of mentors
Mahendra’s position is that one doesn’t need a formal board early-on. But he does advocate assembling a group of mentors to guide the business and help make sure the entrepreneur doesn’t waste a lot of time. Just having to report on status once a month, to an outsider, forces one to measure, show progress and think about the business from the perspective of an outsider. It makes the entrepreneur do things in a disciplined manor that they would otherwise not do. And it also allows the founder to learn how to articulate both the wins and losses. This can serve as great practice for the standard reporting and also the storytelling that will come when the founder goes through a fundraise.
2- Meeting Dynamics & Expectations
On cadence… Mahendra advised to set the meetings upfront, upon closing the investment. Agree together on what the right meeting frequency is, for the next twelve months, and get everything on the calendar. He also suggested to build the board meeting around a meal. And the purpose of the meal is not just the entrepreneur-investor relationship, it’s about the relationship between investors. One doesn’t want a board of individuals trying to one-up or impress each-other. The goal is to assemble a board of people that are comfortable and friendly enough with one-another to put their own agendas aside and focus on their fiduciary responsiblity to the sharehodlers.
3- Board Roles & Responsibilities
Mahendra discussed how the board’s role shifts between the early phase and the growth financing phase. After the first professional round of capital the focus should be on product development and financing. He mentioned two, critical KPI’s to measure:
1) Launch timing: When is the development phase complete and what does the launch cycle look like?
2) Cash timing: How much cash is in the bank and how many months of life does that give us?
Then we discussed how at the second stage there is a shift from managing for launch to managing for growth. Here the board should be focused on sales. When seats are awarded, the founder and existing board should be looking for people w/ growth expertise or customer relationships. And the number of board members, typically an odd number, may increase from 3 to 5 to 7 as the startup progresses from pre-product, to growth to scale and more shareholders are introduced.
And, from a functional standpoint, we covered the decisions that are within board jurisdiction vs. those that are not. The simple rule for a founder is to ask, is this an operational decision or an equity decision? Anything that effects the financing or cap table is a board decision. Everything else is the founding team’s decision. And Mahendra’s one caveat here is that while major operational or business decisions are the responsibility of the startup, it’s always good to keep the board aware of these decisions and get their blessing. When Tom Tunguz was on the program, he discussed his role as a decision auditor. If one thinks of their board as a strategic consulting group that serves as an experienced and insightful sounding board, that can be a major asset to the business.